In today’s Freedom Friday blog and email newsletter, I want to talk about another topic that doesn’t come up often enough, especially from some of my business litigation clients, and that’s “What is conversion?” Frequently when I am asked to file a lawsuit based on fraud, it’s important to sue on more than one cause of action. For instance, if I file a breach of contract lawsuit, there are likely several other claims I will file at the same time. One of those causes of action I might file, depending on the circumstances, is conversion. When I discuss this with my client, he or she always asks what that is, and so in today’s Freedom Friday blog and email newsletter, I’m talking about how to understand conversion as a small business owner.
Conversion is an action for civil theft or civil stealing, or in other words embezzlement. However, conversion is more than that, and you have to prove different elements in order to have a successful case for conversion. Conversion is the wrongful taking of someone else’s property and converting it to your own use. That property can be money, but it can also be things (even a lawnmower), or intangible assets (intellectual property). Conversion is also depriving someone else of the use and enjoyment of their property without their consent. It could also be placing funds in someone else’s control, and then those funds get misappropriated and converted to personal use instead of use in the business which they were intended for. In a nutshell, that’s a legal definition for conversion in Oklahoma.
Some common examples of conversion in a small business include an employee working at a retail store taking small amounts of cash from the register over time and manipulating sales records to avoid being caught, a bookkeeper altering accounting entries or hiding transactions in order to take money, and an HR employee adding fake employees to payroll and putting the fake employees’ paychecks into their own pockets.
Small businesses are especially susceptible to conversion because of a lack of internal controls, high trust and low supervision, limited resources for oversight, overworked owners, poor record-keeping, a lack of formal policies or procedures, cash-heavy operations, and failing to perform background checks on prospective employees. However, you can protect your small business from conversion by separating financial duties, making sure several people manage different aspects of finance, implementing dual approval for large payments and transfers; using accounting software with audit trails; frequently checking financial records by reconciling your records with monthly bank statements and performing random spot checks for petty cash and vendor invoices; and by setting clear rules for reimbursements and business purchases requiring anyone who spends business money provide itemized receipts.
Thinking about starting a small business? Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth? Please contact me at Jonathan@libertylegalok.com to schedule a FREE strategy session.
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